Reaction to Jackson Hole < NFP

Stock reaction to Jackson Hole was not aligned with Fed Funds Futures

Jay Powell’s now infamous quote at Jackson Hole: “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm

Stocks rallied, interpreting this as “rate cuts are coming”.

CME Fed Watch Misses Some Dynamics

Check out the Fed Watch Tool from CME (image pulled 25Aug2025 around 2pm ET)

Looking just before the meeting vs right after the meeting isn’t quite possible with this graph. Using 18Aug2025 as “pre” and 22Aug2025 as “post” suggests no change. And in fact, even a slight decline in the odds of a rate cut.

Quick background: Fed Funds Rate now in the 4.25-4.50 range. The height of the bars in the picture represent the market implied probabilities that the Fed Funds Rate will be in the range of interest rates seen on the horizontal axis. Depicted here are probabilities that the rate will stay the same (425-450) or cut 25bps (400-425).

With the CME tool we can extend to 1M ago (25Jul2025 as of the time I’m writing this), but that misses the point just as much as the 18Aug vs 22Aug comparison.

Time Series of 400-425 & 425-450

Take a look at this time series plot of the evolution of the probabilities for these two policy rate buckets.

Notice that the pink line (400-425) jumped in 22Aug2025, accompanies by the blue line (425-450) falling. This is the impact of the Powell Jackson Hole speech (on the 17Sep2025, at least). Roughly 10ppt swing towards a rate cut.

That’s big, but nothing compared the 40ppt swing towards a cut after the 1Aug2025 Job #, which had a disappointing 73K payroll with significant downward revisions to prior months’ job creation.

Density Movie

You can view the evolution of the full density of options over a longer period here. Watch carefully.

The key here how the density shifted. The right tail came in. The density not not shift left symmetrically. i.e. the chance of no change was swapped for a higher chance of a 25bps cut. We didn’t see an increase in the odds of a 50bps cut (i.e. a longer left tail).

Stock Reaction

So how did stocks react? Check out 22Aug2025. Up 1.5% for the SP500. Compare that to the nearly identical magnitude drop on 1Aug2025 to the disappointing payrolls report.

Pound for pound, Powell’s comments were more impactful on stock prices than the jobs report. Of course, we can’t discern causality without more careful analysis.

Treasury Reaction

Let’s take a look at Long dated Treasuries

The bond market’s reaction to the NFP was stronger than Jackson Hole. This makes sense since we’re judging the potency with the Fed Funds Futures market ala CME (i.e. similar market players)